RSA Retail savings bond?

retail savings bonds offer like 3% interest...
but they are pretty much guaranteed.

I think you could earn more interest by planting your money
 
I'd like more info on these. But these are the rates that they have on the website:

CURRENT INTEREST RATES
FIXED RATES
2 Year Fixed Rate 9.75%
3 Year Fixed Rate 10.00%
5 Year Fixed Rate 10.50%

INFLATION LINKED RATES
3 Year Inflation 3.25%
5 Year Inflation 3.00%
10 Year Inflation 2.75%


I assume that that's per annum, so the fixed rates are comparable with bank interest rates (the advantage being that the bank interest rates generally only apply to large amounts). The inflation linked rates I don't quite understand - is that 3.25% above inflation? 3.25% of the inflation rate? Neither of those options seem realistic, but I'm not sure what else they could mean.
 
STANDARD BANK MONEY MARKET FUND as at 1 May 2008

Nominal: 10.85% per annum
Effective: 11.41% per annum

For comparative purposes... if you were looking at a five or ten year investment, I would recommend at least some equity exposure. Unless of course you are just looking at just preserving your capital and not growing it.
 
Looking at the link that Wynsam posted, it seems like the interest-linked rates are above inflation - so inflation + 3.25%. The odd thing then is that the longer you invest for, the lower your interest rate.

Edit: oh, and it seems to be bi-annual. So you get inflation+3.25% (say) twice a year.

Edit (again - maybe I should have read the whole doc before posting): Okay, how it seems to work is that they increase your capital by the inflation amount every 6 months. At the same time, they pay out the prevailing inflation-linked-interest-rate, so that will vary every 6 months (so the 3.25% they're quoting is just an estimate - it'll be a bit different for every payout). For the fixed rate bonds, you get a set amount every 6 months (not necessarily the figures quoted about, because they take it from the bond yield curve at the time you buy the bond).

So if you think inflation will go up, go for the inflation-linked; if you think it's going to go down, go with the fixed rate (or just invest in a fixed deposit with your bank).
 
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Rather complex explanation of growth/payments show on this page...

https://secure.rsaretailbonds.gov.za/details.aspx?MenuId=53&Posting=1&ParentId=51&First=0

It seems that the capital invested is divided by two before applying the interest payment. So although payments are made twice a year, it is half a payment each time.

So for the 3 year option (3.25%/2)*capital amount

Also still do not understand the higher rate for the shorter term... but will continue reading!
 
Wynsam said:
You are not understanding the product very well.

See here. https://secure.rsaretailbonds.gov.z...re - Inflation Linked Retail Savings Bond.pdf

The interest is over and above inflation.
Click to expand...

It seems you are overestimating the product.

Interest above inflation means nothing, it only means the interest you accrue will be compounded by the inflation rate. So, If you invest R10 000 today, you will have what is today's value of R10 300 in one years time (depending on what inflation will be)

This is why I say it is guaranteed.

So even if by some miracle it nets you R11 000 (total after one year), it is still, in todays terms only worth R10 300 due to inflation.
Which is not great.

The reason it has such a small initial deposit is because they are not expecting people with high incomes to invest in it to make money, it is most probably more useful as a money stabilizer.

Its low risk low return.

Depending on the amount you want to invest, i'd rather look at a money market account @ 10.5% p/a
 
I find this interesting, and again at the same time rather confusing, as quoted on this government page http://www.info.gov.za/speeches/2008/08041810151002.htm :

Since its introduction in 2004, more than 18 400 people have invested R2,3 billion, with an average investment of R54 000. Bonds can be purchased for amounts ranging from R1 000 to R1 million. The following illustrates an investment of R1 000 over two, three and five years.
* two years at 9.5% - R1 203.97
* three years at 9.75% - R1 330.55
* five years at 10.25% - R1 648.39.
Click to expand...

So after three years an annual return of 9.75%, three years 9.98%, and five years 10.51%.... but illustrative....

People should only be considering this if they are looking at preserving their capital and short term only. It is not going to grow your money much. Remember risk versus reward.
 
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Killove said:
It seems you are overestimating the product.

Interest above inflation means nothing, it only means the interest you accrue will be compounded by the inflation rate. So, If you invest R10 000 today, you will have what is today's value of R10 300 in one years time (depending on what inflation will be)

This is why I say it is guaranteed.

So even if by some miracle it nets you R11 000 (total after one year), it is still, in todays terms only worth R10 300 due to inflation.
Which is not great.

The reason it has such a small initial deposit is because they are not expecting people with high incomes to invest in it to make money, it is most probably more useful as a money stabilizer.

Its low risk low return.

Depending on the amount you want to invest, i'd rather look at a money market account @ 10.5% p/a
Click to expand...

It depends on whether you're looking at fixed rate or inflation linked. Fixed rate is much the same as a money market or fixed deposit. Inflation linked is a bit better - you don't just get R10300 after a year, you also get your two coupon payments during the year (totalling R334).
 
CathJ said:
It depends on whether you're looking at fixed rate or inflation linked. Fixed rate is much the same as a money market or fixed deposit. Inflation linked is a bit better - you don't just get R10300 after a year, you also get your two coupon payments during the year (totalling R334).
Click to expand...

Was referring to the guy who said im not understanding the product too well.
RE the 3% above inflation :o
 
Zimbabwe stock market was a better bet a few months back. Could have made an absolute fortune as the market HAD TO outperform inflation to survive! Was a no-brainer...

This bond is much the same as any govt bond except the coupon (interest) is not fixed but rather linked to inflation. You can effectively use this as a tool to hedge your other investments against inflation gains and losses, however you are never going to make much money out of it for that exact same reason. I reckon this should only be used as a hedging tool if your portfolio has a significant exposure to inflation changes. If you are looking to make money out of the bond market, you can do a helluva lot better than this!
 
DJStealth said:
Zimbabwe stock market was a better bet a few months back. Could have made an absolute fortune as the market HAD TO outperform inflation to survive! Was a no-brainer...

This bond is much the same as any govt bond except the coupon (interest) is not fixed but rather linked to inflation. You can effectively use this as a tool to hedge your other investments against inflation gains and losses, however you are never going to make much money out of it for that exact same reason. I reckon this should only be used as a hedging tool if your portfolio has a significant exposure to inflation changes. If you are looking to make money out of the bond market, you can do a helluva lot better than this!
Click to expand...

+1
 
Personally, I wouldn't invest in our retail savings bond. You can get a better yield with the Sanlam Liquid account (more than 12% currently) or with Nedbank's fixed deposits (just over 11.5% at the moment) if you're looking for a short-term parking bay for your cash.

If you want to invest for five years, unless you're retired or really risk-adverse, you can do better with at least some equity exposure. For low equity exposure and an investment term longer than 3 years, i'd go for Nedgroup Investments' Positive Return Fund or Allan Gray's Stable Fund.
 
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